Twist Bioscience Corp Q1 FY2022 Earnings Call

Welcome to Twist Bioscience's Fiscal 2022 First Quarter Financial Results Conference Call. I would now like to turn the conference over to Angela Bitting, SVP of Corporate Affairs and Chief ESG Officer.

Thank you, operator. Good morning, everyone. I would like to thank all of you for joining us today for Twist Bioscience’s conference call to review our fiscal 2022 first quarter financial results and business progress. We issued our financial results this morning, which are available at our website, www.twistbioscience.com. With me on today's call are Dr. Emily Leproust, CEO and Co-Founder of Twist; and Jim Thorburn, CFO of Twist. Emily will begin with a review of our recent progress on Twist businesses, Jim will report on our financial and operational performance, Emily will come back to discuss our upcoming milestones and direction, and we will then open the call for questions. We would ask that you limit your questions to a maximum of two and requeue to see if there are others on the call. As a reminder, this call is being recorded. The audio portion will be archived in the Investors section of our website and will be available for two weeks. During today's presentation, we will be making forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize, and actual results in financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we cannot, at this time, predict the full extent of the ongoing impact of the COVID-19 pandemic and any rebuilding business or economic impact. We disclaim any obligation to update any forward-looking statements, except as required by law. With that, I will now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.

Thank you, Angela, and good morning, everyone. We continued our momentum through the first quarter of fiscal 2022, reporting a record revenue of $42 million and almost $50 million in orders, setting the stage for robust growth in 2022. Our investment in new products, biopharma, and data storage continues to accelerate innovation and create upside opportunities in the medium term. Beginning with SynBio, I’m pleased to report record revenue of $18 million and orders of $22.2 million. We shipped 125,000 genes in the quarter, a new record for Twist, and have increased our gene capacity to 65,000 genes per month with an eye towards 90,000 genes per month in the near future. The increased capacity allows us to accommodate both the ongoing and surge demand as we work to bring the Factory of the Future online. For NGS, revenues and orders for the quarter were $19.2 million and $21.8 million, respectively. NGS revenue and orders were impacted by the timing of the early days as well as some customers' labs impacted by Omicron, with strong growth projected for the remainder of fiscal 2022. We have a great product offering and market that I expect to grow as our customer product lines move from development to commercialization. To give you a bit more color, I’d like to dive into two opportunities we see for 2022 and beyond in NGS. The first is liquid biopsy. The market for disease research estimates would be $19.6 billion by 2025. While we do not develop liquid biopsy tests ourselves, we estimate that the DNA portion is approximately 5% to 10% of the total market, adding $1 billion to $2 billion of serviceable market to Twist. Our liquid biopsy customers are at various stages of development, both in their own drive towards commercialization and in their use of Twist products. Some are just starting to create tests and piloting our products, others have completed the design and product specification including our NGS products and are conducting clinical studies, and a few of them are already commercial. At the clinical trial and commercial stages, each patient sample processed uses some Twist DNA. So, as they advance in their drive towards commercialization and around the commercial test volume, our NGS revenue increases proportionately. Once the liquid biopsy customer receives clearance from the U.S. Food and Drug Administration, the components of the tests are set for the foreseeable future and changing those components is discouraged. As a result, these customers are extremely sticky. To get a bit more granular, we are currently working with more than 20 companies developing liquid biopsy tests. Many of these customers use our fully inclusive workflow to detect methylation in the assays. In addition, we introduced circulating tumor DNA reference, which may play an important role in tuning the accuracy of cancer detection. We believe that developing and standardizing these ultrasensitive yet accurate CT DNA-based assays is paramount to ensure the resulting analysis from the test informs clinical decisions reliably. As the tests come to market and as the reimbursement landscape becomes clear, liquid biopsy customers represent a tremendous upside for Twist. Another key market where we see a significant opportunity is in minimal residual disease, or MRD. MRD assays are used to determine if cancer treatments are working, to check for recurrence of cancer, and to guide further treatment plans. MRD assays are primarily being used for blood cancers. There are many tests in development for other oncology applications. There are three ways that we work with customers in this application. The first is through low-pass sequencing, where we provide the library preparation. This is straightforward. And again, every patient sample needs A-level preparation. The second is whether it's a universal panel for all patients similar to the liquid biopsy assay. The third way we can work with a lot of customers is a scenario where every patient gets their own bespoke panel. When it is difficult for others to offer a bespoke panel that is cost-effective for patients, custom panels account for 80% of our NGS revenue. So custom is something we know well and do well at a reasonable cost. These are just two opportunities we see for growth in 2022 and beyond. In addition, we have launched several products in the December and January timeframe that we believe will contribute meaningfully to growth, including Exome 2.0 with industry-leading content and performance. The 96-Plex Library Prep Kit, a Twistified version of the product acquired from iGenomX, that we believe will drive the conversion of SNP microarray to Twist Enzymatic, and a robust Canine Exome Panel that was designed with both institutes and applications not only in the veterinary medicine but also human health for cancer, heart disease, rheumatic disease, and autoimmune conditions. We also launched Omicron variant control in 14 days, a record on time, and critically important for the research community as COVID continues to evolve. Importantly, we offer three separate Omicron controls, which include the stealth Omicron variant more recently in the United States and earlier in other geographies. Moving to biopharma, we closed the acquisition of Abveris in early December, and the integration is going well. From an external perspective, we expect them to continue to operate relatively separately and collaboratively through the end of calendar year 2022, which will allow for thoughtful and nondisruptive integration as well as account for a specific revenue target earned at that point in time. Moving to 2023, we have said that a combined offering will be the most comprehensive discovery platform in the industry with synthetic, in vivo, and AI-based tools to identify and optimize the best biologics against a wide range of targets. We reported biopharma revenue of $4.8 million for the quarter and $5.6 million in orders, which includes one month of Abveris. In the first quarter, we added eight new partners for Twist Biopharma, with 42 partners in total. We initiated 21 new programs with 52 active programs ongoing at the end of the third quarter. We completed seven programs during the quarter for a total of 39 completed programs for Twist Biopharma. Of our 91 total active and completed programs, 50 at milestones and our royalties, an increase of 16 programs with downstream economics during the third quarter of fiscal 2022. Abveris has 72 projects underway, which, as a reminder, are fee-for-service and typically take three to six months to complete. We recently announced a collaboration with Abcam for discovery around antibodies for diagnostic and research applications. This is a robust partnership that provides license fees and commercial milestone payments for Twist. We have collaborations with Sosei Heptares for antibody discovery in the GPCR space, and Artisan for the discovery of next-generation cell therapeutics. In addition to our work for partners, we published data detailing our COVID antibody development in the peer-reviewed journal MAB. And Revelar Biotherapeutics published a preprint paper showing that our bispecific antibodies, licensed from us, RBT-0813, neutralizes both Omicron and Delta variants of SARS-CoV-2. This bispecific hit all variants of concern today, and Revelar is expected to submit an IND to begin clinical studies in the first half of Q2 2022. Recall that Revelar was launched by Twist in November 2021 and licensed Twist Biopharma discovered COVID antibodies, including RBT-0813. We are eligible to receive success-based milestones extending over $100 million for the achievement of key development, regulatory, and commercial milestones as well as mid-single-digit royalties on any future net sales of RBT-0813. We are committed to paying up to $10 million in initial funding. In addition, Revelar can enter into up to five additional resale programs directed as non-COVID targets over the course of the next four years, with each program subject to additional milestone payments and royalties for Twist. For data storage, we know that today the amount of data storage is increasing dramatically with the hazardous market expected to reach 60% to 80% of the total storage market. Last year, about 1 gigabyte of enterprise data storage was shipped, and estimates show that by 2030, the amount of enterprise data storage shipped is expected to grow to 12 to 32 gigabytes. According to this estimate, in this decade, there will be 10 to 30 times growth in the amount of data storage needed. The current technology to store data—hard drive, flash, and tape—are just not sufficient to scale to these levels. There is a huge potential inefficiency and, in our view, DNA is the only technology that will promise to scale to meet future demand. In January, we announced our first solution, which will be essentially archived, enabling storage of data for 100 years without any migration, energy, or maintenance needed. This product is not available from any provider, and archived data currently needs to be migrated on a five- to seven-year time frame over and over. Moving to the technology roadmap, we expect that our next silicon chip, the Alpha chip, will be a revenue driver for Twist. These chips move us into the terabyte scale of DNA storage capability with further cost reductions as we develop future chips. For the Century Archive, we intend to offer storage-as-a-service, and we will share additional details as we refine our product offering. Looking further into the future, as we always think long-term, even as we execute day by day, we know that hyperscalers need an enterprise class of storage, and that it will have to run within their facility. While this market, the hazardous chemicals, will likely need enzymatic synthesis, while we were looking into the available options for enzymatic synthesis, we found that there are hurdles to overcome. Besides the error rate of nil, which is not optimized, the main issue is that enzymatic synthesis offerings today are very expensive. These costs are approximately one thousand times more than buying oligos on our website. There are two reasons for that high cost. The first is that enzymatic synthesis requires nucleotide triphosphate, which is a very expensive reagent. The second issue is the bio liquid issue where the Michaelis constant tells us that a high concentration of NTPs is required for each base to be added using enzymatic synthesis. So not only is the NTP expensive, but a large excess of them is needed. As we face this challenge, our scientists developed a chemistry where we tether one NTP with one enzyme, which massively reduces the cost. Now we have a low-cost enzymatic synthesis method, but there is an additional problem created by linking the entity to the enzyme that we need to navigate. This problem is that a linker that tethers the NTP enzyme typically creates a scar when the ACG is introduced. Over time, as these scars accumulate, enzymes can't have monodiprotide, and initial disease start limiting the length of oligonucleotide synthesis. In addition, the scar makes the DNA unnatural, which may create issues in oligo applications. At Twist, we are addressing this challenge by developing a unique and innovative way to tether, which provides scarless DNA that is identical to natural DNA. Thus, we now have an enzymatic scientific process that is low-cost, scarless, and finally, we have the ability to develop and perfect the enzyme quickly because we have built an NGS-based platform to screen hundreds of thousands of mutants simultaneously. This means that we can engineer our accuracy faster and cover the IT space more effectively because we have already tested more sequences. While we are quite excited about our new approach, today we use chemical synthesis for all of our products, and we do not see that changing anytime soon. We believe chemical synthesis will remain instrumental as we continue to ship billions of bases a year to thousands of customers. However, we also believe enzymatic synthesis will be useful in enterprise offerings for data storage, increasing new product lines for our core business like cell-based entities of synthetic DNA and decentralized synthesis. But we do not have to develop all of those applications ourselves - we are happy to engage in OEM markets. An important thing to note is that as we grow, we will not lose our spirit of innovation. We are still on the market, and we will always be executing while we work to perfect our next innovation to continue to drive the future. Enzymatic synthesis is a perfect example of our future of innovation and execution. And now I’d like to turn it over to Jim to review our financials.

All right. Thank you, Emily. We started off fiscal 2022 on a strong note as we continue to scale our platform. Revenue for quarter one was $42 million, which is a sequential growth of 11% and year-over-year growth of 49%. Orders were $49.6 million for the quarter, a sequential increase of 10% and 48% year-over-year growth. Gross margin for the first quarter was 35.6%, and we shipped to approximately 1,800 customers for the quarter, and that’s up from 1,500 in the first quarter of fiscal 2021, and we ended the quarter with cash and investments of approximately $409 million. Now, I’ll give some more color on orders. NGS orders for the first quarter were $21.8 million, which is an increase of 28% year-over-year. And during the quarter, we received orders from approximately 700 NGS customers, and the top 10 accounts placed orders of approximately $7 million as compared to approximately $10 million for the top 10 in the previous quarter, confirming we’re seeing continued diversification of our customer footprint. Our pipeline for larger opportunities continues to scale, and we’re now tracking 225 accounts, up from 199 we noted in our last earnings call. In quarter one, 96 have adopted Twist, and that’s an increase from 88% last quarter. This growth reinforces the robust and growing market opportunity, our expanding portfolio, investments in our commercial organization, and expanding our customer base with increased adoption of NGS applications including liquid biopsy, MRD, diagnostics, RNA controls, and clinical applications. Now turning to SynBio. We saw robust growth in our SynBio orders, which includes genes, DNA preps, IgG, live base, and oligo pools. Orders rose to $22.2 million in the first quarter, up from $20.1 million in the fourth quarter of fiscal 2021. This sequential growth of 10%, and up approximately 40% from $15.9 million in the first quarter of fiscal 2021. The major contributor to growth is the industrial sector, with health care and academia being very strong in the quarter. Now to biopharma. We continue to scale our biopharma business, including Abveris, as orders rose to $5.6 million for the first quarter, up from $3.4 million in quarter four compared to $1 million in the first quarter of fiscal 2021. For our Twist Biopharma antibody platform, we have 42 partners, with 52 active programs, and now have 50 milestone and royalty programs, and that’s up from 35 in the last quarter. Please note, orders may not translate into revenue, but provide a trend line for each product group. Now moving from orders to revenue. Revenue for the first quarter was $42 million, representing approximately 49% growth from $28.2 million in the first quarter of fiscal 2021. NGS product revenue was $19.2 million in the first quarter of 2022, and that’s 23% growth year-over-year. In quarter one, fiscal 2022, top 20 customers accounted for approximately 44% of our NGS revenue. Our SynBio product revenue for the quarter was approximately $18 million, up from $13.9 million in the same quarter of fiscal 2021. Some of the highlights include shipping to approximately 1,300 SynBio customers in the quarter. Genes revenue was $13.5 million, up from $8.9 million in the first quarter of fiscal 2021. Biopharma revenue for the quarter was approximately $4.8 million, which includes one month of Abveris. I will now cover our revenue breakdown by industry. Health care revenue in quarter one was $21 million, up from $16 million in the first quarter of fiscal 2021. Industrial Chemicals was $12.5 million versus $7.1 million in the first quarter of fiscal 2021. Even though we’re operating in a pandemic where many academic labs were impacted globally, our academic revenue was $7.9 million versus $4.9 million in Q1 2021, reflecting our continued focus on growing the long tail, and agricultural revenue was $0.6 million versus $0.2 million in the first quarter of fiscal 2021. I will now briefly cover our regional progress for the first quarter of fiscal 2022. Our investment in building out our global commercial organization is reflected in the strong international growth. EMEA had a great start to the year with first quarter revenue of $15.4 million versus $9.1 million in the first quarter of fiscal 2021. APAC had a terrific quarter one, with revenue of $4 million, up from $1.8 million in the first quarter of fiscal 2021. U.S., which includes Americas, revenue was $22.6 million in the first quarter of fiscal 2022 versus $17.3 million for the same period of fiscal 2021. Now moving down the P&L. Our gross margin for the quarter was approximately $15 million or 35.6% of revenue versus 35.5% in quarter one fiscal 2021. Our gross margin this quarter was influenced by a combination of the production challenges we highlighted in our previous call and the higher mix of SynBio products. Now to operating expenses. Our quarter one operating expense, which includes R&D, SG&A and change in fair value of acquisitions was approximately $71 million. R&D for the quarter was $22.6 million, an increase from $19.4 million in quarter four, primarily due to increased biopharma spend associated with Revelar and the Abveris acquisition. Our SG&A costs in quarter one were $51.1 million as compared to $38.2 million in quarter four due to an increase in stock-based compensation of approximately $9 million; change in fair value of contingent considerations and indemnity holdbacks for the quarter resulted in a gain of $2.8 million. Stock-based compensation for the quarter was $18.1 million, up from $9.2 million in quarter four due to a combination of annual stock grants and the Abveris acquisition. Depreciation was $2.8 million for quarter one. Our net loss before tax was approximately $56 million as compared to $40.9 million for quarter four, primarily due to the aforementioned increases in operating expenses, primarily stock-based compensation, and costs associated with Revelar. In quarter one, we recorded a tax gain of $10 million associated with the Abveris transaction, which brings our loss after tax to approximately $46 million. CapEx for the quarter was $22 million, mostly associated with our Factory of the Future investments. Given the global supply chain challenges, we have strategically increased our inventory to $40 million compared to $32 million at the end of fiscal 2021. We ended the quarter with cash and investments of approximately $409 million. I will now provide updated financial guidance for fiscal 2022. As we noted, quarter one bookings were strong, and we’re optimistic about our opportunities. At the same time, there remains uncertainty associated with the pandemic. For the year 2022, we are increasing our revenue guidance to $189 million to $198 million, and that’s up from the previous guidance of $183 million to $193 million. SynBio revenue is estimated in the range of $70 million to $72 million compared to $67 million to $70 million in our previous guidance. NGS revenue is estimated to be in the range of $94 million to $96 million, as we’re projecting strong second half, based on our increased pipeline production scaling. Biopharma revenue, including the Abveris acquisition, is estimated to be in the range of approximately $25 million to $30 million, as compared to previous guidance of $22 million to $27 million. There is no change in our projected FY 2022 gross margin guidance in the range of 35% to 37%, which reflects costs associated with our Portland brand. Excluding these costs, gross margin guidance would be 42% to 44%. Operating expenses, which includes R&D and SG&A, are expected to be approximately $335 million for the year, including $130 million in R&D expenses, as we previously guided. Our net loss guidance for the year will be approximately $260 million. Stock-based compensation for the year is projected to be approximately $74 million. This has increased from our last projection of $47 million, primarily due to the Abveris acquisition. Depreciation is projected to be at $13 million, and projected CapEx for FY 2022 continues to be $80 million to $90 million, including $75 million for a Factory of the Future investments in the Portland area. In summary, we’d like to welcome all the Abveris team on board and thank all the Twisters for delivering another terrific quarter of record growth as we continue to execute our strategy. With that, I’ll turn the call back to Emily.

Thank you, Jim. Looking ahead, we have amazing opportunities across each area of our business to both grow our revenue and expand the market rise. In synthetic biology, we plan to continue to build our business and expand our customer base; we remain focused on bringing up the Factory of the Future to reduce overall turnaround time, especially for genes. With the additional space that we have, we expect to be able to launch new products, helping us to address new markets, with some of those products offering the potential of increased margins. In NGS, we believe our serviceable market is growing and will expand significantly as liquid biopsy and MRD assets from our customers reach the commercial marketplace, which we expect will expand our revenue base accordingly. In addition, we aim to own the space between the sample and sequence. We’ll continue to grow our customer base in liquid biopsy and MRD, as well as adding RNA and lab preparation products, and driving SNP microarray conversions now that we have launched the 96-Plex Library Prep Kit. In biopharma, subject to regulatory approval, we expect to have the first two discovering antibodies in the clinic this year through Revelar, and with the integration of Swiss and Abveris, we believe that we have a great opportunity to ramp revenues and monetize our platform through retaining customers, cross-selling additional partnerships, out-licensing, and advancing our internal pipeline. And in storage, we have a roadmap to reach the terabyte scale of DNA storage offering with our first alpha chip. We plan to introduce a century archive solution and will work to continue to drive down the cost of storage significantly. Finally, I’d like to mention that we issued our first report at the end of January, and you can find this on our site. We are extremely pleased to share our thoughts on this front. With that, let’s open the call for questions. Operator?

Thank you. Our first question comes from Catherine Schulte with Baird. Your line is open.

Hi everyone. Thanks for the questions. I guess first maybe on the Enzymatic Synthesis platform. Can you just talk through the path forward there? What development milestones or updates should we be expecting to cross in 2022? And it sounds like you might not be set on developing your own instrument there, but rather work with a partner or license out your chemistry. At what point do you think the chemistry will be in a state that’s ready to start potential partner conversations?

Thank you, Catherine, for the question. So, the impetus initially for the Enzymatic Synthesis development was our roadmap for data storage. The first product that we’re going to launch is Century Archive, which will be run as a storage as a service. However, in our roadmap in future generations, we know that we need to develop an enterprise version of our data storage, and that enterprise would be used at hyperscalers in their facilities. For the hyperscalers and enterprise data storage, we need Enzymatic Synthesis. We will do the development. So we will develop our own hardware that works for automatic business in a decentralized manner, at least for data storage. We have not closed the door to other markets to do it ourselves. However, we do believe in being disciplined and focused on what we do. So that means that for other markets, it could be done with partners or it could be ourselves. So, we have not closed any doors. We have created optionality, but at the same time, we have a very strong internal roadmap for SynBio and NGS. As we develop the Enzymatic Synthesis approach and we get the length and error rate that we want, as we launch new products internally, we'll have a choice and at the time we choose whichever is the best technology to produce the product.

Okay. Got it. And then maybe for NGS, we get a lot of questions on pricing variation for that product. You talked a lot about liquid biopsy today. Is there a different average pricing when it comes to liquid biopsy customers? How much can pricing per sample vary for a panel versus an Exome and so on? And then do your methylation panels have different pricing?

Yes, pricing is a little bit complex in NGS just because there are many different combinations of the product. In general, the more probes in the panel, the more expensive it gets. So, if you have a panel that has 1 million probes to have a very wide analysis of different genes, that would be more expensive than if you have a narrow panel that has 50,000 probes. The pricing per sample goes down as the number of samples goes up. So, if you buy a panel that will capture 1,000 patients, the price would be higher than if it's an order that will be able to capture 1 million samples or more. Those are the two components. Additionally, depending on whether the customer chooses Twist for the adapters, the blockers, the buffers, the beads, and the enzyme, there are additional costs. In general, we tend to incentivize customers to bundle, and so that enables us to drive revenue up and margins. Yes, it is a relatively complex metric. That being said, in general, we try to target that the part Twist collects from a liquid biopsy revenue point of view is about 5% to 10% of where the liquid biopsy market is. Hopefully, that gives you a little bit of a sense of the revenue that we are targeting per patient in liquid biopsy.

Thank you. Our next question comes from Tycho Peterson with J.P. Morgan. Your line is open.

Hi guys, this is Casey on for Tycho. It looks like EMEA had a strong quarter of growth. Can you talk a little bit about where the strength came from in that region, and if the growth there is sustainable?

Sorry, I was muted there. Yes. So sorry, I just missed your question there. Could you repeat the question please?

Yes. So EMEA looks like it had a strong quarter growth. Can you talk a little bit about where the strength came from in that region, and if the growth is sustainable?

Yes. No, the growth in EMEA continues to be sequential growth every quarter. We've invested heavily in a commercial organization in EMEA, delivering on SynBio, large pharma. We're seeing opportunity in biopharma antibodies as well, plus EMEA is doing exceptionally well in NGS. We're seeing across all key countries, such as Germany, the Netherlands, the Nordics, and the U.K. There are a couple of drivers: this includes product quality, strong customer support, and the commercial capabilities of our team in Europe. We're really pleased with what's happening in Europe, and we see significant opportunity to continue our growth in Europe.

Got you. And then just on the cash burn guide here, are there any supply chain or inflationary headwinds that are baked in there? And maybe what are some sources of upside here as we progress through the year? Thank you.

Yes. Supply chain has done well. We've increased our inventory. We continue to manage that very aggressively. We have a fantastic operations and purchasing team that have worked well with our partners. There's a lot of work keeping on top of it. If we go back to the beginning of the pandemic, we continue to invest in our inventory. We've now increased that to $40 million. In terms of going forward, we see plenty of opportunity for upsides in biopharma. As Emily highlighted, we're seeing opportunities in NGS liquid biopsy. We continue to see the number of large NGS customers. The pipeline continues to grow and we continue to see significant growth opportunities, not only in EMEA, but we also see opportunities in APAC. Additionally, we expect the iGenomX upside as we see more opportunity from microarray to NGS conversion. Abveris is doing extremely well. The team there is fantastic with a good first month. This quarter is looking good, and we're very optimistic and bullish on the outlook there.

Thank you. Our next question comes from Puneet Souda with SVB Leerink. Your line is open.

Yes. Hi Emily and Jim, thanks for taking the question. So first one is really around the quarter. I mean you delivered strongly in SynBio, but NGS was impacted by Omicron as you mentioned. So I just want to make sure that the production challenges that you had for the last quarter are all resolved; if you could confirm that? And if you can clarify what was the catch-up in SynBio there? And what are you currently seeing, among the labs especially the academic labs, returning back and overall NGS volumes, currently? And then I have a follow-up on guidance.

Maybe I'll start on the production issue, and Jim can answer the NGS part of the question. So yes, the production issue is behind us in terms of identification, resolution of the problem, and shipping out all the backlog that may have been created by the production. Remember, customers never received any bad products because we ensure quality. Some of the genes we had to make and some customers experienced some delay. Just to clarify, the production issue was only limited to gene production. So, it did not impact NGS at all. We’re quite pleased with the number of genes that we shipped last quarter: 125,000 genes, which is a record, and we had strong orders in SynBio.

Yes. So Puneet, orders were very strong in SynBio with $22 million in orders in SynBio, which is up sequentially. We're seeing strong demand from an increasing customer base. We have momentum in SynBio. In terms of NGS, we had bookings of almost $22 million in the quarter, and that's flat with our quarter four, which is typically strong for NGS. We feel very good about the outlook for NGS in terms of $94 million to $96 million. As I said, the number of large customers continues to scale and adoption increases. We're continuing to launch more products. We have genomics opportunities ahead. The setup for NGS looks very good, plus in SynBio we had strong gene shipments. We shipped 125,000 genes; that's one of our strongest quarters ever. We've got the production issues behind us. We've increased capacity in genes and we're set to open up Portland in July. That also provides us more capability and positions us to have a really strong fiscal 2023.

Okay. That's great. And then on the guide – I appreciate the guide raise that appears to be about $6.5 million at the midpoint, including Abveris. It seems that about half of that is on SynBio, the other half is on Biopharma. Your NGS guide remains the same, so just given the number of comments that you've made throughout the call for liquid biopsy, MRD, and a number of other products. Overall, just given the momentum you're seeing in NGS, the NGS guide is still flat for the year. Just wanted to clarify if what I'm missing there, and just want to make sure that we're capturing that. Is this just sort of a near-term conservatism with Omicron, as we're just emerging out of that? Or is there more to this, and if you could clarify? Thanks.

A couple of points. Yes, near-term conservatism. Secondly, we're getting set up for a very strong second half on NGS, driven by adoption, growth in the customer base, and just our outlook in terms of where we see the market going. If you step back and look at the numbers, we billed about $19 million in the first quarter, and we're seeing significant step-up from that as we progress through quarter three and quarter four.

Thank you. Our next question comes from Luke Sergott with Barclays. Your line is open.

Good morning, everybody. Thanks for the question. Excuse me. I just wanted to get a clarification to get an idea of how you're thinking about when you're going from – you were at 40,000 genes per month, now you're at 65,000 and then you're going to 90,000 in the near future. Can you give us a sense of how we should think about that rolling through the revenue? I mean you're not seeing that type of step-up implied in the guide. Just kind of the dynamics there. And then if you could give any clarification on near future, that would be helpful?

Yes. Thank you, Luke, it's a great question. The impetus for the increased capacity is to capture surge demand. We have two types of customers: bigger accounts and then we have the long tail of fewer genes at the time. Last quarter, we shipped 125,000 genes, and so in theory, with 65,000 genes capacity per month, we can manage that. However, depending on when those genes come in, we also need to be able to capture the surge demand. By increasing the capacity, that means that genes never have to wait; as soon as they hit the website, they can go online. This is the first impetus, the surge demand. Secondly, it provides protection from what happened in August and in a small way in October, where we had problems in the fab. When the fab is full, and you need to remake genes, it takes a lot longer to recover from something relatively simple to fix. By having extra capacity, if we have an issue in a fab where we are down for a day or two, it becomes completely transparent to the customer because we have additional capacity to catch up. That’s really the impetus for it. Over time, as we keep delivering, we capture more market. We are growing about twice the rate of the market. So, we are going to grow into that capacity. The capacity of the Factory of the Future is going to be important for us. Additionally, in the Factory of the Future, we’ll have new product features such as increased speed, which will enable us to increase the price of the product at about the same cost and to get better margins. That’s really why we’re doing it.

Okay. That's helpful. And then lastly, you guys have been signing a bunch of deals. You did one with Abcam most recently; you have someone with Artisan to do next-generation cell therapy. Can you give us a sense of or update us on any expected milestones, kind of the pacing throughout the year? Anything from any of the biopharma partnerships other than, I understand the guide, but any particular programs that stand out that we need to keep a close eye on?

A little bit of a big focus of ours is that from those deals, we get upfront payments, which is good as it covers costs, and the margins are typically around 50% to 60%. But as you suggest, the majority of the economic value is actually in the milestones and royalties. What we've been doing is taking the number of milestones and royalties. Last quarter, out of 21 new programs, 15 of them were milestones and royalties; that is great. While the timing is uncertain, we do our work in about six months. It can take 18 to 24 months for our partners to go through A&D, at which point we could begin collecting some milestones. We're excited about Abcam, especially since it's not in the therapeutics area; it's more in research and diagnostics. This means that the potential for milestones and royalty is a lot faster to happen than a therapeutic deal. We want to make more of these disclosures, but unfortunately, we need the cooperation of the partners, and they are not always willing to share that. Ultimately, we are positive about the future of milestones and royalty deals.

Thank you. Our next question comes from Matt Sykes with Goldman Sachs. Your line is open.

Hi, good morning. Thanks for taking my questions. Maybe along the lines of the last question, just on the biopharma. I'm just curious from a high level, Emily, as you talked about it during the early stages, the conversations you were having from an economic standpoint weren't as beneficial because you're still trying to prove out your capabilities. But now you've gained a lot of momentum. You signed a number of new collaborations and agreements. I'm just wondering how the nature of the conversations have changed, not just from an economic standpoint, but perhaps folks coming to you as the word gets out in terms of your capabilities, and how you see that business in terms of growth trajectory today versus what you might have imagined it would have been a few years ago?

Yes, it's quite exciting, the change. A few years ago, we were a very risky bet. The most likely deals we would get were from small companies that were looking for a bleeding-edge advantage. Now that we are generating a large amount of data, we are starting to develop a reputation. It’s quite exciting that as we engage more and more in the biopharma world, I hear from people I meet for the first time, saying, 'Twist, you guys are doing great, you guys are respected.' It's becoming a lot easier, and in a sense, we're kind of almost crossing the chasm in biopharma. We've gone from being a risky bet to being a sure thing that even companies that are a bit more prudent and conservative are considering embracing. This is really the benefit of our science focus. We knew that our customers were the skeptical scientists in senior roles like the VPs of Biologics and Discovery. They are very skeptical. We made an effort to build a strong dataset, and now that data set is speaking for itself, translating into more partnerships and better discussions around economic sharing.

Great, thanks for that, Emily. Very helpful. And then maybe just one for you, Jim, just on the expense side. You've been pretty clear about the margin guidance and the CapEx guidance and the impact from factory of the future. I'm just wondering from a conservatism standpoint, as you look out at the build-out of the factory of the future, what’s been built in there for potential issues that might come up over the course of the year?

For the factory of the future, we're projecting about $25 million of OpEx spend for the year. As we ramp the factory of the future, that’s going to start impacting Q3, and by Q4 we could see roughly about $7 million to $8 million hitting the COGS. One issue I'd highlight is, looking at our margins this year, we've given guidance that it will be 35% to 37%. If you look at Q1 and compare it to Q4, one reason for the difference is that in Q4, 56% of our business was NGS. In Q1, it was 46%, and we’re going to see that NGS claim in terms of revenues throughout the year. NGS has one of our stronger margins. We've got a couple of areas that we're looking at and still managing. We feel good about the 35% to 37% guidance for the year.

Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Your line is open.

Hey guys. Thanks for taking my question. Jim, I want to start off with the guidance here. In Q1, the guide was 37% to 38%, you basically raised it by roughly $5 million. The guide raise was by a similar amount. So, one, was there any timing impact in Q1? Why wouldn't the strength carry through to the back half? And what was the M&A contribution in the quarter? Like, when I look at the guide raise, I think some of it was biopharma. Was there an Abveris deal or was it the base biopharma increase?

Abveris did contribute to the guidance raise, and we are also seeing growth in the base biopharma business. It's a combination of both. We had strong SynBio in Q1. NGS has continued to do well. We're also still dealing with pandemic challenges. As always, we're prudent in our guidance, but we are tracking a strong pipeline.

Thank you. Our next question comes from Matt Larew with William Blair. Your line is open.

Hi, good morning. You broke out some of the revenue by industry, but I'm curious more around the growth in the SynBio customer base. Assuming most of those customers are probably starting small, so might not be tied to the revenue growth. I'm just kind of curious where you're seeing the fastest areas of new customer growth and if you can connect any of that to the new products that you've added in the last six months?

Yes. The customer growth in SynBio has been strong. We've had a strong quarter. The number of genes we shipped was a record. We're seeing broad customer demand from industrial, healthcare, pharma, as well as academic sectors. There’s strong demand across all areas of SynBio, highlighting the strength of the portfolio. Shipping genes has been a strong contributor, and we're witnessing a good pulse in the product advancement, including igG and good pools.

Okay. And then obviously, you're just a few months away here from factory of the future opening. You mentioned last quarter that the focus was on adding capital equipment, starting to get the hiring funnel going. What do you see as potential risks to the opening? Do you feel like at this point you have the equipment, most of the hires have been made, and it’s just a matter of really getting through the way up to go live?

For the equipment, we have engaged with suppliers and are keeping close tabs on the supply chain. Construction is going well; we’re hiring. The software team is on track with the new software; we don’t have too many issues on the supply chain. We will keep managing it. Hiring has also started off well. We feel good about where we are at. We're tracking to our internal plans and targeting July for early starts.

Thank you. Our next question comes from Dan Brennan with Cowen. Your line is open.

Great, thanks for the questions. Maybe the first one just on the Revelar opportunity for COVID antibody. The $100 million of potential payments is pretty sizable. Just wondering, can you walk us through timing catalysts? And what's the potential for milestone payments this year?

In terms of timing, they are driving very hard to have an IND in the first half of this calendar year, then go into clinic. We have a classic structure at IND, Phase I, Phase II launch, and so forth. Additionally, we have opportunities to earn extra fees and milestones when they start declaring additional targets that they're going to go after.

Got it. Thanks, Emily. Maybe the SNP conversion opportunity I haven't heard come up on the call, but just walk us through how those discussions are going and anything likely to close. Just kind of walk us through what the opportunity could look like for this year?

Yes, that's a focus for us. We made the acquisition of iGenomX and it took us a few quarters to optimize the kit. The kit has relaunched as the 96-Plex Library Preparation Kit, and we are excited to see the contribution that this acquisition will make. We expect to see more conversion in the near term.

Thank you. And I'm currently showing no further questions at this time. I'd like to turn the call back over to Emily Leproust for closing remarks.

Thank you very much for joining us today. While the stock market has been a bit rocky lately, we continue to deliver solid revenue growth across our businesses by focusing on executing every day. We look forward to keeping you apprised of our innovations and advancements that are all driven by the very hard work of all the Twisters. So with that, thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.